Thursday, November 17, 2016

With the election of Donald Trump as next U.S. president,
America is going to see the richest President all time. Earlier the richest one was founding
President George Washington with worth of 580 million U.S. dollars. Below is
the list of richest presidents along with their wealth, in 2016 dollars. The
figures represent peak wealth.

1.John. F. Kennedy (
more than 1 billion $)

He along with his family owned more than 1 billion us
dollars. His family fortune was created by his father John Kennedy, who made
money from commodity trading and real estate investing.

2.George Washington
(580 million dollars)

He was an industrialist and entrepreneur. He sat up his own
distillatory for making alcohol. Moreover he owned more than 8000 acres of
land. President Washington estimated worth in today’s dollars is 580 million $.

3.Thomas Jefferson (234
million dollars)

He was third president of United States. His net worth was 234
million $. He inherited vast fortune but
ended up in debts, in later part of his life.

4.Theodore Roosevelt(138
million dollars)

He owned 138 million dollars. He was born to prominent and
wealthy New York family and became 26th U.S. president.

5.Andrew Jackson(131
million dollars)

Andrew Jackson was 7th president of United States.
He owned 640-acare plantation called hermitage situated near Nashville. He was
among first three investors who founded Memphis.

6.James Madison (112
million dollars)

112 million dollars president Madison after inheriting some
land from his father, he eventually owned 5000-acres. He became the largest land owner of Orange County,
Virginia.

7.Lyndon b. Johnson.
(108 million dollars)

After inheriting small piece of
land, in Texas, he eventually built it up into expensive 1500-acre ranch. His
wife also owned radio and TV station in Austin, Texas.

8.Herbert Hoover (82
million dollars)

A mining engineer by profession amassed huge stakes in
different mining companies.

9.Bill Clinton ( 75
million dollars)

He unlike other presidents, Clinton didn’t inherited family
fortune. He made his fortune during his tenure as Arkansas Governor and later
as President. He also received 15 million$ advance for his autobiography in 2005.
President Clinton is one of the highest paid keynote speakers.

10.Franklin D.
Roosevelt (66 million dollars)

32nd President of United States owned 66 million
dollars. Like other wealthy U.S. presidents much of his fortune was inherited.

Tuesday, November 8, 2016

For the most part of the history, the most powerful economic
powers were simply the countries that housed the most people and controlled the
most land. Up until 300 years ago, economies across the world were mainly
agricultural. Economic historian Ian Morris says that for the most part of the
human history, civilization’s economic strength depended largely on when it
experienced an agricultural revolution. Until the industrial revolution upended
everything, it would take a nation thousands of years to turn itself into an
economic powerhouse.

Here is the list of 5 historically dominant economic civilizations, in chronological order.

Roman Empire

Rome, the distant descendant of first agricultural
revolution, became dominant global empire in matters of centuries. It at its
peak controlled 25 to 30% global production. As trade is vital for economic
growth, the Romans were better at it during their height than anybody else.
Historical evidence also suggest that they had very well developed financial
system that made extensive use of credit and bank notes, hence enabling traders
to forgo hauling precious metals across distances.

China under Song Dynasty

China under song dynasty controlled 25 to 30% of global
output. Although agriculture reached china later than it did in modern day Middle
East but Chinese made good use of the benefits of agricultural society.

Mughal Empire

One of the most magnificent and economically most powerful
civilization, the world has ever seen is India’s Mughal empire. The English
word Mogul is derived from the word ‘Mughal’. Even today the signs of their
splendor can be seen in form Taj Mahal Agra, Badshahi Mosque,etc. According to
late economic historian Angus Maddison, the per capita income of the mughal era
india was likely about the same as in England or Britain at the time, but
India’s aristocracy’s life style surpassed that of European elites. Mughal era at it its peak produced one-fourth
of global output.

British civilization

Its aptitude of profiteering from its colonies made it the
first global economic powerhouse which dominated the world without strictly
controlling equally large percentage of population. Another advantage, Britain
enjoyed came from huge technological boost of the industrial revolution. It, at
its height, produced 21% of total global output out of which 6% came from its
colonies.

American civilization

United States, for about past 140 years, is the largest
economy, but its relative power is in decline. It is expected that China’s
economy would overtake the United States, by 2018.

After the World War II, there was a brief period when United
States, owing to destruction of other industrial economies, produced half of
world total economic output.

Sunday, July 24, 2016

Beijing has the world’s costliest
rental housing, according to a survey of 15 global cities, with average prices
more than 1.2 times average salaries, says a report by the Global Cities
Business Alliance, a UK-based not-for-profit organization. The rise in rent, in
developing countries like China, India, and Pakistan, has provided
developers an opportunity to make money out of thin air.

What they do is to purchase a
piece of land and then announce construction of residential plaza or shopping mall over
it. Advance booking is announced for residential and commercial units. The
advance money collected is then used for completing the project. Unheard in
many developed countries, realty development is one of the most lucrative areas
for investors.

The use of customers’ money
for growth isn’t limited to realty sector only; entrepreneurs can use this
method to grow their startups in other areas as well. Take the example of
TutorVista, which successfully leveraged this customers’ money model of
financing. It started when Krishnan Ganesh hired three teachers and provided
them with VoIP internet connection, PC displaying a digital whiteboard along with
webcam. It quickly became a 100$ per month tuition service.

Dell is another example of
customer funded business. Michael Dell, founder of Dell, started by selling
customized PCs to small businesses. The core percept in his business was to collect
cash before having to lay out money on chips and computers to be sold.

Customer funding provides many
benefits to the startups. Usually, startups receive higher valuations if they performed
successfully for an extended period of time, without external funding. Additionally,
strong cash inflows, from customers, allow entrepreneurs to focus on proving
business model rather than wooing investors.

In this model of business
funding, balance sheet shows more current liabilities than current assets. In
accounting term it is called negative working capital. Ironically positive
working capital is assumed to be good as it poses less insolvency risk to the
business.

Not every startup can be run
using customers’ funding. Capital intensive projects need to rely on
traditional way of financing.

Sunday, July 17, 2016

In the last couple of days, Pakistan has witnessed an
increase in foreign investment. Many local companies were acquired by foreign
multinationals. Dawlance, Pakistan’s white goods manufacturer was acquired by
Turkish group Arçelik . Furthermore, in the same week a Dutch based dairy
cooperative FrieslandCampina acquired stakes in Engro for around $460 million.

This shows that international investors are viewing Pakistan
as a growing market. Its huge population provides huge consumer base. The rise
in middle class along with young population makes it attractive location for
investment. Many European countries are
having population as much as Pakistan has graduates.

But is there any benefit to the nation of these huge
investments from multinationals. In a nutshell we would say yes. But on a deep
analysis we would say it is hard to say anything precise unless we take into
account other factors.

Let us assume that Turkish group would enhance the quality
of the products, manufactured by Dawlance, and would make them attractive to
export markets. Definitely, in this case it would be good for Pakistan.
Multinational companies have huge research and development departments with
billions of dollars in budget which helps them in developing new and better
products. Small companies like local ones cannot expend that much on research
and development. Furthermore, small companies have issues with protecting
patent rights. Hence, from this particular angle it is good that foreign
companies are making inroads into Pakistani market.

With better quality and increased foreign clients’
satisfaction, country would be able to earn foreign exchange. This would also
help Pakistan to move from exporter of low-tech to exporter of high-tech
products.

The ability of multinationals to get a better deal from
Govt. in matters of tax rebates is another thing to ponder. In countries like
Pakistan, Govt. rules are more favorable to foreign big investors rather than
local small investors. The exemption of duties and taxes extended to Chinese
companies working on CPEC is one such example.

Exemptions in taxes make it more likely for these companies
to earn heavy profits and pay high salaries to its employee. This would mean
more and high paying jobs for locals as well as better employee retention for
the multinational companies.

But there are more cases in which these companies hire
foreign people than local ones. This would mean snatching jobs which could be
provided by local companies to local people. Moreover, huge portion of profit
earned, through getting tax rebates, by these companies is repatriated back to
their country of origin.

Thus foreign investment is good for host country if it leads
to transfer of technology; increase in exports, provides employment to local ones, pays taxes and duties to host country Govt. and improves quality of
manufactured goods.

Sunday, July 3, 2016

Turkish company Arçelikhas said it is going to acquire Dawlance, Pakistani
manufacturer of consumer durables, for $258 million.

The deal is expected to be
closed by the end of 2016, as it requires approvals from Competition Commission
of Pakistan (CCP), purchase of minority stakes and transferring of land and
buildings to the ownership of the company, it said.

Dawlance had revenues of
$220.6 million in 2015. Similarly, its earnings before interest, tax,
depreciation and amortization (EBITDA) is $45 million last year. Its net debt
amounted to $30 million at the end of 2015, according to Deutsche Bank.

Sources close to the sponsors
of Dawlance say the company had been on the auction block for the last five
years.

Bashir Dawood is the major shareholder of Dawlance. He is Hussain Dawood’s brother-in-law, a corporate tycoon
who controls majority shareholdings in Engro, HUBCO, and Dawood Hercules groups.

Sources say the owner of
Dawlance wanted to permanently move abroad. His children have established
careers in fine arts and interior designing in Europe and the Middle East and
apparently have no interest in managing the family business.

Tuesday, June 7, 2016

Islamic finance is sharia compliant way of financing. Sharia, on one hand, prohibits any transaction
involving undue uncertainty and on the other hand, it requires avoidance of
receiving interest. Sharia defines interest as any income derived in excess of loan.
Loans involve personal guarantee of debtor and therefore any such benefit would
amount to injustice to debtor. In other words, you can only make profit when
you don’t enjoy guaranteed return of the principal amount.

Islamic finance is Sharia compliant way of raising funds

Another important aspect of sharia financing is use of money
for ethically healthy projects e.g. you cannot invest in projects involving alcohol
manufacturing.

Sharia compliant financial institutions have developed many
sharia compliant products including modaraba, musharika, sukkuk, murabaha etc. Let’s
discuss them one by one

Modaraba

Modaraba is financing mode in which one person provides financial
resources and other labour and skills to carry out business. Both share profit,
in pre-determined ratio, while losses would accrue to one who invested
financial resources.

Musharaka

Musharka is mode of financing in which both partners
contribute capital and divide profits/losses according to pre-agreed ratio.

Sukkuk

Sukkuk is a bond which
gives right of ownership, of some tangible asset, to its holders. The holder of
instrument then collects profit as rent of the asset. Three elements of sukkuk as outlined by Taqi
Usmani are

·Sukuk must represent ownership shares in assets or commercial or
industrial enterprises that bring profits or revenues

·Payments to Sukuk-holders should be the share of profits (after
costs) of the assets or enterprise

·The value payable to the Sukuk-holder on maturity should be the
current market value of the assets or enterprise and not the principal
originally invested,

Murabaha

Murabaha is sharia compliant form of leasing. In this form
no amount is charged for late payment as it would constitute interest (Riba).
Murabaha has become the most prevalent form of Islamic financing.

Thursday, May 26, 2016

Leveraging (Other People’s Money) is one of the techniques,
most used by billionaires to amass fortune. Sam Walton, Donald Trump, Aristotle Onassis,
W. Clement Stone, Daniel Ludwig and number of other tycoons applied this
principal to set up their empires.

Financial leverage is using borrowed funds to invest in an
industry. Say, for example, an investor borrows 1000$ and invest it along with
his own 1000$. Now, if the industry generates 20% returns he would be able to
produce 33% return on equity as compared to 20% returns he would have generated without leveraging.

The most famous example of application is Aristotle Onassis
who borrowed funds from banks, using future cash flow from his already owned
ships as collateral, to build more ships. Although Daniel Ludwig was the
founder of this technique but Aristotle Onassis is more famous for its
application.

W. Clement Stone also used other people’s money to buy other
insurance companies. E.g. he bought the Pennsylvania Casualty Company
using funds borrowed from the Commercial Credit Company of Baltimore, which
owned the company he was buying.

Financial leverage is a double edged sword. Using it can generate
super normal profits in good days but it can play against you, as well, by generating
extra losses during recession.

Leveraging may help you to be extra vigilant regarding your
business expenses. The liability you have under taken in form of funds and interest
would pressurize you to be extra careful in your expenditure and you would move
towards cost cutting. It may provide impetus for you to work hard. Fed chairman
Ben Bernanke, has compared, adding debt to firm’s capital structure, to putting
a dagger to steering wheel of your car. Dagger- which points towards your stomach-
would motivate you to drive carefully but at the same time the risk of damaging
yourself is very serious when someone else hits you- even if you are driving
carefully.

Thursday, May 19, 2016

Dubai presents lucrative
investment opportunities for Asian investors in real estate sector. The
proximity of Dubai to these countries along with good rental yields is the main
attraction. Moreover, Dubai offers unique opportunity of earning tax free
gains.

Furthermore, the deteriorating
law and order situation in many of surrounding countries is another reason
which boosted Dubai’s property market. Affluent investors from gulf including
Syria, Lebanon, Iraq, and other Arab countries have flocked to Dubai.

Investors from non-Arab
countries too have benefited from its property market. The data from Dubai Land
Department shows that Pakistani investors, during 2015, has invested AED 8
billion in Dubai, which is more than AED 7.588 billion, invested during 2014.

India has topped the list of
largest investor. The amount invested by Indians during 2015 is AED 20 billion
which is more than AED 18.123 billion, invested by Indians during 2014.

Burj khalifa

UK citizens are second
largest investors in Dubai’s property market. The amount invested by U.K.
investors, during 2015, is AED 10 Billion. Previous year investors from U.K.
invested AED 9.318 billion.

Sunday, May 1, 2016

REITs (Real Estate Investment Trusts) are companies that
pool funds from investors. This fund then is used to own or finance income
producing real estate. Owing shares in REITs allow you to reap all benefits of
owning property along with some other advantages.

These benefits include

Investing in small amounts

For average joe to purchase property in Karachi or Islamabad
isn’t possible. It may take years in saving to buy a small piece of land. But
by purchasing shares in REIT you can start owning property with as less as 5000
rupees.

Collection of rent and maintenance services

When you own the
property you have to maintain the property and collect the rent. If you own
more than one property then managing them and collecting rent would be a lot hectic.
With REITs you can collect your rents in the form of dividends. Furthermore all
the maintenance functions are to be done by your REIT.

Diversification

If you have small amount to invest in real estate, you
cannot buy a number of properties which can diversify your risk.
Diversification for REITs is possible owing to their huge funds, hence; you can
be a lot secure when you invest through REITs.

Professional management

REITs charge you for their professional services. The management makes sure that risk and rewards
are balanced.

Economies of scale

Purchasing and managing properties can be very costly. REIT
owns a lot of properties. In this way they can spread fix costs over a large
number of properties, hence reduced per unit costs for you.

Availability of loans

In developing world taking loans from banks is a problem.
REITs can take loan from banks easily if they have good credit rating. This
enables them to make leverage purchases, hence high dividends for you.

Less risk of fraud

With professional management the risk of fraud is minimized.
Defective titles and encumbrances are now not your problems, but your REIT will
take care of them.